Investing In the New Age: Retiring in Style

Investing for the future is one of those things that canInvesting in a New Society:
be difficult. None of us know exactly what the future isThe new society will require a much more
and where to put our money. Many more of us knowsophisticated investor than what was necessary
almost nothing about investing and prefer to useduring our parents time. Even though the basics of
seasoned professionals. In the end we are left withinvesting are the same such as risk vs. reward,
little control over the fate of our retirement.diversification, living below your means, etc. are the
Conventional Wisdom:same the types of investments and the amount of risk
Conventional wisdom says live below your means,people are willing to make should change.
invest, and the government will chip in the rest. We getDiversity no longer includes mutual funds only but the
there through education and working hard. For themix of investments in stocks, bonds, real estate,
Baby Boomers this made sense but many are now inbusiness, and others. The more different sectors of
trouble as retirement is only a few years off and morethe society you invest in the better chance you have
than 50% have less than $100,000 in their retirementof whether declines in the market. For example, real
accounts.estate may further be invested in vacant land,
During the era of the baby boomers the mentalityapartments (income generating), office buildings or
drew from their parents which typically lived throughhouses.
the Great Depression. During this time there was littleRisk is a natural part of getting a return. Generally the
employment, difficulty starting businesses and ahigher the risk the more money to be made but also
general feeling that one must save in order to wardthe more likely it is to lose that money. The same can
off serious poverty. The rainy day mentality has neverbe said for low risk low returns. In todays market there
left us.is some fear that inflation could eat away at ones
A Changed Economy:gains.
The economy is definitely going to change in the nextLet us say that you are in a fund that pays 6%
20-30 years. Some of the changes that are happeninginterest. Not bad? The only problem is that a 2006
are the retirement of a large section of the populationinflation rate of 3.5% just left with an increase of 2.5%.
which will need to be taken care of (possibleUmmmnot very good! If you really wanted a 6% return
bankruptcy of Medicare & Social Security), the rise ofyou would have to make a 9.5% return on all of your
oil prices ($4 to $5 a gallon) that will slow the economyinvestments.
down, huge national debt that exceeds our ability toIf you follow the advice of mutual fund investors there
pay for it (without rampant inflation from printingis a good chance you wont have much when
money), and environmental change (lack of water).retirement comes. That means you are going to have
When the economy changes we will need to changeto take some risk by investing less in blue chips stocks
with it. That means society will shift to the owners ofand more in small to medium businesses. The key to
production and the workers thereby shrinking theavoiding collapse is to diversify your portfolio with a
middle class. Thus we will be a rich/poor society thatbasket of smaller companies and investments that
will be dramatically different than it is today. All of thehave nothing to do with the stock market (i.e. real
conventional wisdom people have been relying on forestate, businesses, etc.).
years will be wiped away or eat up by inflation.